You have received PPP loan funding: Now what?

Brian E. Ravencraft, CPA, CGMA is a Principal with Holbrook & Manter, CPAs

By Brian E. Ravencraft, CPA, CGMA, Partner at Holbrook & Manter, CPAs

So, you have applied for and received a loan under the Paycheck Protection Program (PPP Loan). What should you do next to ensure that you are tracking and using the funds on eligible expenses to qualify for loan forgiveness?


Loan forgiveness

The borrower is eligible for full forgiveness of the loan principal if the funds are used on payroll costs, interest payments on mortgages, payments of rent on any lease and utility payments. Due to high demand for the PPP loans, 75% of the forgiven amount must be used for payroll costs.

Forgiveness is based on the employer maintaining or rehiring employees and maintaining wage levels by June 30, 2020. The amount forgiven will be reduced if you decrease your full-time employee count compared to the prior year and/or by the reduction in pay of any employee beyond 25% of their prior year compensation. The test period for the full-time equivalent employee count can either be from Feb. 15, 2019 through June 30, 2019 or Jan. 1, 2020 to Feb. 29, 2020. Tests are based on monthly averages.


Documentation for requesting loan forgiveness

Borrowers will verify through documentation to lenders the eligible payments made during the 8-week period beginning on the day after the loan is funded. The request will need to include documents that verify the number of full-time equivalent employees and pay rates, as well as the eligible payments on payroll, mortgage interest, leases and utilities. Documentation should include:

  • Payroll tax filings reported to the IRS
  • State income, payroll and unemployment insurance filings
  • Documentation including cancelled checks, payment receipts, transcripts of accounts or other documents verifying payments on mortgage obligations, leases and utilities
  • Certification from a representative of the small business stating the documents are true and that the forgiveness amount was used to keep employees and make other eligible payments
  • Any other documentation the lender determines necessary.

The lender will be required to make a decision on the forgiveness within 60 days. Amounts forgiven under Section 1106 of the CARES Act will be considered cancelled indebtedness and will not be included in taxable income.


My loan is forgiven, but what about the deductibility of expenses paid with the loan proceeds?

Unfortunately, on April 30, 2020, the IRS issued Notice 2020-32 stating that no deduction is allowed for an expense that is otherwise deductible, if the payment of the expense results in forgiveness of a covered loan under the PPP. This, the IRS explains, prevents a double tax benefit. The guidance negates the benefit of the “exclusion from gross income” Congress provided in the law, instead merely complicating the tax return, and will ultimately frustrate loan recipients.

Since the Notice was issued, several prominent Congressional leaders have stated that it does not express the intent of the law and have vowed that Congress will fix the issue in its next legislative response. We will have to wait for further guidance, but for now the PPP loan has become less beneficial than we first thought and hoped.

Here are some best practices for tracking use of PPP funds

1.Keep your PPP funds in a separate bank account. While there is no requirement to do so, it will be easier to track the use of the funds if they aren’t comingled with your other operating account transactions. You can make transfers from the separate bank account for payroll and other eligible expenses as needed.

  1. Utilize a payroll service. It is not too late to start using a third party to process and report on your company payroll. The payroll detail reports provided by the payroll processor will quickly and easily provide the support needed to show the payroll costs paid.
  2. Automate your bookkeeping. If you are not already doing so, we recommend using an accounting software such as QuickBooks or Xero to track your expenses. The accounting software will have easy to print reports to show payments made for employee health insurance and retirement benefits, as well as payments for mortgage interest, leases and utilities.

As additional guidance is released by the Small Business Administration (SBA) and the Department of Treasury, I can provide that to you.


Brian E. Ravencraft, CPA, CGMA is a Principal with Holbrook & Manter, CPAs. Brian has been with Holbrook & Manter since 1995, primarily focusing on the areas of Tax Consulting and Management Advisory Services within several firm service areas, focusing on agri-business and closely held businesses and their owners. Holbrook & Manter is a professional services firm founded in 1919 and we are unique in that we offer the resources of a large firm without compromising the focused and responsive personal attention that each client deserves. You can reach Brian through

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